PROF. SHEENA GUPTA.

ecoN0Mtco & eNGL'SHEXPERT

CA SHUBHAM SET HI-AccotJNT8
g EXPERT
Ch-n 9811792114 13
—trai Problems of an economy S ,) (1
The three major problemsor an economyare:
What to Produce: it involves deciding the final combination of goods and
services to be produced, i.e., it involves selection Of goods and gorvices
and the quantity of each, that the economy should produce.

3• involves dec ing the technique of production, i.e.,

whether selected goods be produced with more labour and less capital
(known as Labour Intensive Techg!8u€) or With more capital and less
labour (known as Capital Intensive Technique).

For whom to produce: It involves deciding the distribution of output

among people, i.e., it involves selection Of the people Who
will ultimately consume the goods.
Economic system refers to an arrangementby which central problems of an
economy are solved.
Types of Economic Systems
CUPb'Jux
Economic Systems are generally Of 3 different types:
Capitalist Economy:A capita st econo y is the one in which the means
o productionar led and operatedby the private sectey_..
Production is done mainly for earning profits. so, the central problems
(what, how and for whom to produce) are solved through the market
forces of demand and supply.
Under capitalist economy, the three central problems are solved in the
following manner:

COMMERCE PATHSHAALA
BRANCH-I: D-12,SECTOR-7, ROHINI
BRANCH-2- AYODHYA CHOWK,SECTOR-3, ROHINI
 PROF. SHEENA GUPTA-Ec0N0MIcs &ENGLISH
CA SHUBHAM SET HI-ACCOUNTS
&BST
9811792114
What to produce: Under this system, only those goods are prod
that can be sold profitablyeither in the domesticor in the
• How to Produce: Goods are produced using cheaper techniques
production. In case of cheap labour, labour- intensive methods
production are used.
• For Whomto produce: In a society„ goods produced are
distribute
q
among people not on the basis of their needs but on the basis Oftheir
income or purchasingpower.This means that a sick personWill
be
able to get medicine only when he can afford to buy it, Otherwise
not,
even if there is urgency.

Socialist Economy:A social economyis the one I which the

meansof
production are owned, controlled and operated by the government.
Under
SOCI y, the three central problemsare solved in the following
manner:
What to Produce: In a socialist society, the govemmentdecides what
to produce in accordance with needs of the society.
• How to Produce: The governmentdecides how the goods are to be
produced.
• For whom to Produce: Distributionunder socialism is supposedto be
based on what people need and not on what they can afford to
purchase. A socialist nation provides free health care to#éGitiZens,
who need it.

A mixed economic system refers to a system in which he

public sector and the private sector are tted their r e roles for
solv•ng t e central pro ems of the economy.
• In mixed economy, the governmen a e market togethersolve the
3 central problems: what to produce, how to produce,and for whomto
produce.
 9811792114
Constitution s' to tho public
Private sector w•nq to b" part o' tho plan efforts.

e purpose of the Commissionwas to carefully assess tho human

physical resources of the country and to prepare the Plans for
effectiveuse Ofresources.
e Planning Commission fixed the planning period at five years, which
began the era Of •Five Year Plans'.
Plan
Meaning Of plan: Plan is document showing detailed scheme, program and
strategy, out in advance for fulfilling an objective.
Reason for Making Plans: Planning is done to achieve some predetermined
goals within a specified time period.It involves detailedanalysis Of the
problems at hand and making conscious to solve them.
Duration Of Each Plan: In India, plans are made for duration of five years and
are known as "Five Y (The concept of Five Year Plans was
borrowedfrom the formerSoviet Union).
Our plan documents not only specify the objectivesto be
attained in the five years of a plan, but also, what is to be achievedover a
period Of is 'Perspective Plan
five year plans are suppose to provide the basis for the perspectiVUPlan:

GOALS OF FIVE YEAR PLANS

The five year plans have been concerned with the removalof economic
backwardness of the country and to make India a developedeconomy.

COMMERCE PATHSHAALA
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 PROF. SHEENA GUPTA.ec0N0Mtcq
CA SHUBHAM
9811792114
• The year plnngh" takenenro to thnt the
Of the population benefit 'rom the eeonomlc progreg• o' the

year plan wag jaunehod for n poraodAtarting 'r It' Apr",

March,
• Each five year plan listed tho basic GoatnOf India•ødovelop•nont,
which served as the guiding principles of Indian planning.
• These basic Goats are:
Growth
2. Modemization
3. Self-reliance
4. Equity
Growth
The stagnation during the British rule forced the planners to make Economic
Growth as the first and the foremost objective of Indian plans.
refe increase th untry's capacity to produce the
outputof and services within the country.
Growthimplies:
+ Either a larger stock of productivecapital;
+ Or a larger size of supporting services like transport and banking;
+ Or an increase in the efficiency of productivecapital and services.

• A good indicator of economic growth, in the language of economics, is

steady increase in the Gross Domestic Product (GDP).
—GDP refers to market value of all the final goods and services produced
in the count durin a period of one year Increase in GDP or
availability of goods and services enables peopleto enjoy a more rich
and varied life.

COMMERCEPATHSHAALA
BRANCH-I: 0-12, SECTOR-7,ROHINI
BRANCH-2- AYODHYA CHOWK, SECTOR.3, ROHINI
 PROF. st
CA St-IL
(Agricultural
81179211 .eetorø
GOPof n e from the the economy. GOP
gerv lee .eetor) of to the
.eet•r and contributes
sector
growth,
more to GDPgrowth. composition of
up tm, qtructura'
Contribution or
"990, tho sharo of the service
croasod; gy trt,is
Share of Service Sector In GDP 1n or-agriculture or industry)
that in the
sector was 40.5 per cent more than sector was accelerÅted
in share of the service of gcobalization in the count
past 199t period,which marked

Modernization
ation
need for
Indian lann rs have always reco ni Modernization includes:
people.
odernizationaims to increase t
goods and services through use of new techno og Fo
productionof
can ncrease the output on the farm y us•n ne
examp e, er
factory
se varietiesinsteadof using the old ones. m ar y,
crease t by usin of machi
Change in social outlook: soci
outlook,such as gender empowermentor roviding equal right
women. society will be more civilized and prosperous if it makes u
o talents of women in the work place
The term modernizationconnotes (indicates) a variety Of structural a
institutionalchangesin the frameworkof economic activity". Modernizati
implies;
 OF. SHEENA GUPTA.ecoN0Mjcg ENGLiSHexpeRT
. CA SHUBHAM SETHl.AccouNts & OSTexpeRT
9811792114
• Shift in sectorat composition Of production and diversification of
production of activities;
An advancement of technology and institutional innovations.
So, as to transform a feudal and colonial economy into a modern and
independent economy.

Seif•reliance

Self-reliance under India means overcoming the need Of

external In other words, means to have devc nt
through domestic resources.
o rom t omic rowth and modernization the five ea ans
Stressed on the use of own resources: in order—to—Auce our
dependence on fareian countries.
• The policy of self-reliance was considered a necessity because of two
reasons:
o reduce foreigndependence:As India was recently freed from
reduce our dependence on foreign
countries,especially for food. So, stress should be give to self-
reliance.
Ho avoid Foreign Interferenc It was feared that dependenceon
importedfood supplies, foreign technology and foreign capital may
increase foreign interference in the policies of our country.

Equity
The objectives of growth, modernizationand self-reliance, by themselves,
may not improve the kind of life, which people are living.

COMMERCEPATHSHAALA
BRANCH-I: D-12,SECTOR-7, ROHINI
BRANCH-2- AYODHYA CHOWK, SECTOR-3, ROHINI
 CA

9811792114
"so, it is o' ecgnqrnicerQ'perityare
availed by poor)0' econo
Additionto 0b ec rowth,modernizationand self-reliance,
equity also
according Equi!y, every Should be ablo to moot his or her
(food, houSO,education and health CareO and inequality in
the distribution of wealth should bo reduced.
aims to raise tho standard Of living Of all people and
promotesocial justic•
Let us now discuss, how the first seven five year plans (from 1950 to 1990)
attempted to attain the four goals and the extent, to which they Succeeded
in doing so, With reference to 'Agriculture', 'Industry' and 'Trade'.

AGRICULTURAL DEVELOPMENT
• At the time of independence,the land tenure system was characterized
by intermediaries(like zamindars) who merely collected rent (lagaan)
from the actual tillers of the soil.
The low productivityof the agricultural sector forced India to import
food from the United States of America.
• The agricultural sector accountedfor the largest share of workforce
with approximately70-75 per cent. So, agricultural developmentwas
focused right from the First Five Year plan.
• The measures undertaken to promote the growth in the agricultural
sector can be broadly categorized as 'land Reforms' and 'Green
Revolution'.

Land Reforms
Land p marily refers o change in t e ownership of landholdings.
Land Reforms measures have been introduced by various underdeveloped

COMMERCEPATHSHAALA
BRANCH-I: D-12, SECTOR-7, ROHINI
BRANCH-2- AYODHYA CHOWK, SECTOR-3, ROHINI
 PROF. SHEENA EXPERT
GUPTA.ec0N0M'cs ENGLISH
SHUBHAM SETHl.AccotJNtg a OSTEXPERT
21
9811792114
devetoping Countries, for attaining rational land digtrlbution pattern
and viable farming structure.
There was a great need for land reforms in a country like India, where
majority of its populationstill depends on agriculture.
• Land reforms were needed to achieve the objective of Equity in
agriculture.

Indian Government took various steps to abolish intermediaries and to make

tillers, the owners of land. 10Vb
( mak_l ti110f
• The idea behin* this step was that ownership of land
incentive to the ct Ilers to make improvements provided
sufficient capital was made available to them).
e abolition of intermediaries brou ht 20 to direct
contact with the governmen•
• The ownership rights granted to tenants gave them the incentives to
increase output and this contributed to r h i agriculture.
owever, the goal of uit was no served' abaftieff
iDE rm&d
In some areas, the former"amindars continued to own large
of land by making use of some loopholes in the legislation; v
In some cases, tenants were evicted and(famindars claimed to be
self-cultivato
ven after getting the ownership the poorest
a ourers did not benefit from land refor
Let us now discuss 'Land Ceiling , ich was one Of the very
important measures towards land reforms in the country.
 .accouNT' NT

Land Ceiling 9811792114

Coil", 2 nmit o' land. which could be
individua .
4 (Oeyond the lands belonging to a particular person
Would be taken over by the Governmentand will be allotted to the
landless cultiv
The purpose of land ceiling was to reduce the concentration of land
ownership in few hands.
ceili Oteequity in the agricultural sector.
ceiling legislaCian Gballenged by the big landlords.
ion his delay time was used by them to
get the la hereby escaping
from the legislation.
Conclusion: v;nd reforms were
because governments of these states were committe of land
reforrnsg Unfortunately, other states did not have the same level of
commitment and vast inequality in landholdings continued.

Green Revolution
At the time o independence,about 75 e t of the country'spopulation
was dependent on agriculture.
• India's agriculture vitally depends on the monsoon and in case of
shortage of monsoon, the fa ers had to face lot of troubles.
Moreover,th oductivit In the agriculturalsector yas very due
to use of outdated technology and absence of required infrastructure.
As a result of intensive and continuedeffort of many agricultural
scientists, this stagnation in agriculture was permanentlybroken
the "Green Revolution'.

COMMERCE PATHSHAALA
BRANCH-I: D-f2, SECTOR-7, ROHINI
BRANCH-2- AYODHYA CHOWK, SECTOR-3, ROHINI
 PROF. SHEENA GUPTA-ECONOMICS & ENGLISHEXPERT
k
SHUBHAM SETH l.AccotJNts &DSTEXPERT

n Revolutio
9811792114
refers to the lar e incre duction of food grains duo
to use Of i h yielding variety (HMV) see Green Revolution is the
spectqcular advance e t in the field of agriculture>
e Khar s son 6k India adop%d High Yielding Varieties Programme
for the first time. The programme was successful due to:
High Yielding Varieties (HYV) of seeds;
Adequate irrigation facilities;
Application Offertilizers, pesticides, insecticides, et
In this Way, a new technology was gradually adopted in Indian agriculture.
This new strategy is also popularly known as modem agricultural technology
or Green Revolution.
HYV seeds: Main Reason for Agricultural Revolution
Agricultural revolution occurred
seeds (high yielding varieties H seeds), which raised agricultural yield
er acre o incredible heights.
ese seeds can be te
facilities for drainage and water suppl
com ar ses of
chemical fertilizers ————.iS-Lii.l.i.z.2ß)
(4 to 10 times more to get the largest
possible production.
, to-geuye-Uenef-iL-fzam_Hyu--s.eedsJ ndian farmers need to have;
"enable irrigation facilities• and
inancial resources (to purchase fertilizers and pesticides).
Indian Economy experienced the success of Green Revolution in 2 phases;
I. In the first phase (Mid60s to Mid70s), the use of HYV seeds was
restricted to moreaffluentStates ( like Punjab,Andhra Pradesh, Tamil
 24
9811792114 prym.ruyvbenefittodthe
the use o' HMV•ed.
spread
2. the (Mid 70s to Mid 800), the HYV technology
to a ta er number of statos and benefitted moro_variotyof crop .
Important ot Green Revolutio
spread Of Green Revolution technology enabled India to achieve
in food grains. India was no longer at the mercy of America, or
ay other the food requirements. eCA/l•FJ
Green Revolution resulted in "Marketable
Surplus". mtrketable Surplus refers to that part Of agricultural produce
which is sold n rmors after meetin their Wn
consumption requiremen{D
• Growth in agricultural outputmakes a differenceto the economy
only when large proportionof this increase is sold in th ark t
• Fortunately,a good proportionof ric and w
the green revolution period was sold by the farmers in the market.

2. Buffer Stock of Food Grains: The green revolution enabled the

government to procure •sufficientamount of food grains to build a stock
which could be used in times o food shorta e.
3. Benefit to low-incomearoups: e ro ortion of f ins was
sold by the farmers in the market,their prices de
0th m tion. he low-incomegroups,who spend a large
percentage of their income on food, benefited from this decline in
relative prices.
Risks Involved Under Green Revolution
While the nation had immenselybenefitedfrom the green revolution,the
technology involved was not free fromrisks.

COMMERCEPATHSHAALA
BRANCH-I: 0-12, SECTOR.7, ROHINI
 pROF.
SHEENA
GUPTA-ecoN0M'cs&ENGLISH
EXPERT
CA SHUBHAM SETH' -ACCOUNTS & BST EXPERT

Risk of Pest
So, ther crops were ,more prone to attack by
as a risk that small farmers
could lose everything in o a optedtechnology
a pest attack. owever, this ri 3
considerably reduced by
the services renderedby research institutes
established by the Government.
Therewas a risk that costly
'uJbUFi,nputs (HYV seeds, fertilizers, etc.) required under will
inc dis ariGes between sma a
ig farmers outd afford the g farmers since only the
required inputs.
D.
However, due to favourable steps
taken by the g ernment, these fea
not come true he overnment rovid
farmers so that they could also have access
to the needed
Since the small farmers could Obtain the
required inputs, the output on small
arms equaled the output on large farms in the course result,
Of time G
e green revolution benefited the small as well as rich farmers>
te Over Subsid
Subsidy, in context of agriculture, eans that nputs at
prices lower than the market
uring the initial phases of green revolution new technology was
looke up the farmers.
So, it was necessary for the Governmentto grant subsidies to provide
an incentive for adoption of the new HYV technology.
with (Ge passage of time, there has been over.
huge a b the men
Economists in Favour of Subsidies
1. The governmentshould continuewith agricultural subsidies as farming
in India continues to be a risky business.

COMMERCE PATHSHAALA
BRANCH-I: D-12, SECTOR-7, ROHINI
BRANCH-2- AYODHYA CHOWK, SECTOR-3, ROHINI
 •GA SHUBHAM SETHI.AccouNts &
9811792114
2. Malority of the farmers are yery poor and they will not be able to
the required inputs without the subsidies.
3. Eliminating subsidi ease the income inequality between rich
and poor farmers and will violate the ultima e goal of equity.
In brief, subsidies in India are necessary for poor and small farmers, to
nable them to make use of modern agricultural techmques. ecessary stem
should be taken to ensure that only the poor farmers enjoy the benefits Of
subsidies and not the fertilizer industry and big farmers.

"ccording to some economists, granted by the

Government to provide an incentive for adoption Of the new HYV
etechnology—so, after the wide acceptance of technology, subsidies
should be phased out ad their purpose has been served.
Subsidies do not benefit the poor and small farmers (target group) as
benefits Of substantial amount of subsidy go to fertilizer industry and
prosperous farmers.
Therefore, there is no case for continuing with subsidies as it does not
benefit the target group and it is a huge burden on the government's
finances.

Critical Appraisal of Agricultural Development (1950 —1990)

Indian economy inherited stagnant and backward agricultural sector from
the British rule. so, immediately after the independence,Indian Government.
undertook various measures to improve the condition Of agriculture.
• The 'Land Reform' measures and 'Green Revolution' were the greatest
achievements of the Indian Government, in enhancing the agricultural
production and productivity.
 000
CA SHUBHAM SETHt.aacouNts
o 9811792114
topmen€
At
to decide the 'policy
sector) and the private Sector

a need a leading rolo Of the Public Sector due to the foll

reasons:
Shortage Of Capital with Priv—te vate enterpreneurs did not
have the ca ita ventu
required for the development Of Indian economy. At the time
independence, Tatas and Birlas were the only well- known Private
enterpreneurs. As a result, Governmenthad to make industria
vestment through Public Sector Undertakings(PSWs)
k of Incentivefor PrivateSector: The not big
to encourage private industrialists to ke major
even if they had capital to do so. Due to limited size of the market,
level of demand for the industrial goods.
he 0b ective of equity and social welfare
Of the G uld be achieved only throughdirect rtici
of the state in the rocess of industrializat
AS a result, state had complete control over those industries, that were vital
for the economy. The policies of the private sector had to be complemen
to those Of the public sector, with public sector leading the way.

Industrial Policy Resolution1956

Industrial Policy is a Comprehensivepackage of policy measures which
covers various issues connected with different industrial enterprises of the
country.

COMMERCE PATHSHAALA
 PROF. SHEENA EXPERT
GUPTA-ecoN0Mtcs&ENGLISH
CA SHUBHAM SET HI-Accoutrrs
& expeRT
9811792114
• Between 1950 and 1990, there had been substantial increase in the
agricultural productivity. As a result of Green revolution, India became
self-sufficient in food production. Land Reforms resulted in abolition of
zamindari system.
• The o r ion of GDP between 1950 and 1990 contributed by
agriculqure declined significantly, but not the population depending on

• Aroun per ent of the country'spulation continued he

employedin a riculture,even til 990 Aggcultural outputcould have
been grown with much less people work ng in the sector, butandustrial
rand service sectors were unable to absorb the extra people involved in
agriculture. The involvementof such a large proportionOf the
agriculturewas regardedas the importantfailure of
policies followed durin 1950 -1

INDUSTRIAL DEVELOPMENT
The developing countries (like India) can progress only if they have a good
industrial sector. Industry provides employment,which is more stable than
the employmentin agriculture«ndustrialization promote modernizationland
overall prosperi Due to this reason, Five Year Plans stressed a lot on the
ment.
the time of independence,the variety of industries was very limited.
ton textile and jute ndustries were mos 10 ed in Indi There was
gytwo well-managed iron and steel one in amshedpu and the other
. So, there was a strong need to expand the in ustrial base with a
variety industries.

COMMERCEPATHSHAALA
BRANCH-I: D-12,SECTOR-7, ROHINI
BRANCH-2- AYODHYA CHOWK, SECTOR-3, ROHINI
 PROF. SHEENA GUPTA.ec0N0Mtes
CA SHUBHAM SET HI-Accouutg
• Potley for devising various procedurgn.
principle'. rote. nod for controlling industrial enterprise o'
•1 Atter the Industries Policy. 940 Indlnn economy had to a series a
series of economic and politicäl changog, which necessitated tho need
n industrial policy for tho country. So, on April 30, 195%.a
second Industrial Policy Resolution was adopted in India.
Classification of Industries
According to Industrial Policy Resolution 1956, the industries were
reclassified into three categories, viz, Schedule A, Schedule B and Schedule
c.
Schedule A: ategory comprised industries which would be
exclusively wned by the st In this schedule, 17 industries were
included, like arms and ammunitions; atomic energy; heavy and core
industries; aircraft; oil; railways; shipping; etc.
/ "Schedule B: In this schedule, 12 industries were placed, which would
be progressively state-owned.The state would take the initiative of
setting up industries and private sector will supplement efforts of the
state. This schedule incluÄÄdüSfiöE like aluminium,other mining
ustries, machine tools, fertilizers, etc.
Schedule C: This schedule consists of the remaining industries which
were to be in the private sector. The state would facilitate and
encourage the developmentof all these industries. These industries
were controlled by the state through a system of licenses, enforced
under Industries (Developrvent and Regulation) Act, 1951.

COMMERCEPATHSHAALA
BRANCH-I: D-12,SECTOR.7, ROHINI
BRANCH-2- AYODHYA CHOWK, SECTOR-3, ROHINI
 eoe
000 000
CA SHUBHAM SETHI-accouN
9811792414
Industriai Licensing
n industrial license is Develo ment
unit to manufacture goods. e Indust
to iSSUe licenses
government,
Regulatio Ac 1951 em 0 ered e
etting up of
>aanaiæof existing ones; and
•C Diversification of products.
cor ng to Industrial Licensing:
government.
I. No new industry was allowed unless is obtained from the
established
2. It was easier to Obtaina license if the industrial unit was
were given
in an economically backward area. In addition, such units
lower
certain concessions, such a tax benefits and electricity at a
tariff. The purpose of this policy was to promote regional equality.
3. License was needed even if an existin indus ex n
output or diversify production. License to expand production was given
e overnmentw nvinced that there is a need for larger
quantity of goods in the economy.

Small-Scale Industries (SSI)

In 5 he village and small-scale Industries Committee (Karve Committee)
recognized the possibility of using small-scale industries to promote rural
development. A •small-scale industry' is
maximum This i has charged
O e akh in 1950 to present limit of rupees one crore.
po nt Points about Small-scale Industries
Employment Generation: Small-scale industries are more labour
intensive, i.e., they use more labour than the large-scale industries
COMMERCEPATHSHAALA
BRANCH-I: D-12, SECTOR-7, ROHINI
BRANCH-2- AYODHYA CHOWK, SECTOR-3, ROHINI
 pROF. SHEENA GUPTA.ec0N0Mtcs & ENGLISHEXPERT
CA SHUBHAM SETH I-AccotJNTs & BST EXPERT
31
9811792114
and, therefore, they generate
more employment.After agriculture,
small-scale industries provide employment to the largest number of
people in India.
Need for Protection from Big Firms:
Sean-scale industries cannot
ompe e t the bi industrial ey can nourish only then they
are protected from the la e firms. So, various steps were taken by the
government for their growth.
eservati0Q Of Products: overnment reserved roduc ion f a
number of roducts for the small-scale industry. The criterion for
reserving the products dependedon the ability of these units to
manufacture the goods.
all-scale industries were also given
concessions, such as excise duty.and bank loans lower
interest rates.

TRADE POLICY : IMPORTSUBSTITUTION

In order to be self-reliant in vital sectors, India has followed the strategy of
epl ing many imports by domestic production.
In the first seven Ian ade was characterized by an inward lookin
Trade Strategy. Technically, this strategy is called "Import
Substitution'.
• Import Substitution refers to a policy of replacement or substitution of
imports by domestic production.
For example, instead of importing vehicles made in a foreign country,
domestic industries would be encouraged to produce them in India
itself.
• The Basic aim Of the policy was to protect domestic industries from
foreign competition.
4•The policy af Imaart Substitutioncan serve 2 definit objectives:
Saving of precious foreign exchange; and

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cont annuat growth rate of
also admirabto. induntrini doting
Indian Industry was no longer
restricted to cotton It algo
ncluded engineering goods an a w de
industrial sector became wou rango o Consumergood".
diversified by 1990, jargoiy duo to pubßc
sector.
3. The promotionof small-scale
industries gave opportunitiesto people with
small capital to get into bus ness.
ew "vestment opportunitiont•otped
generating more employment. It promoted
growth With equity.
(through Import Substitution) enabled
the development of indigenous industries in tho areas Of electronics and
automobile sectors, which Otherwise could not havo developed. However.
this protection had two drawbacks:
Inward Looking Trade Strategy: Our policies were 'l rd oriented' and
so w failed to develop a strong export sector.
Due to restrictions on Imports, some domestic
pro ucers to improvethe quali of their goods
and it forced the Indian consumers to purchase, whatever is produce by
them. The domestic industry
product quality.
According to some economists, we should protect our producers from
foreign competition as long as the rich nations to do so.
5. Liceneing Policy h"lgad the governmentto monitorand control the
industrial production.However,excessive regulation by the government
created two difficulties:
t Misuse: it
o ense not for starting a new firm, but
competitors from starting new firms
•Time Corseming• The cu be o e and compleys procedure for
obtaininglicense was very time consuming.A lot Of time was spent by
industrialists in trying to obtain a license.

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Quotas
ection from Imports through "Tariffs' and produced in India from
Government made use of two wa s to protect goods
Imports;
goods. The basic aim
1. Tariffs r to taxes levied on imported
o make them more
r imposing heavy duty on importedgoods was
e pens e and discourage their use.
of a
2. Quotas refer to fixing the maximum limit on the imports
ommodity by a domestic pro uc
the
The tariff on imported goods and fixation Of quotas helped in restricting
level of imports. As a result, the domestic firms could expand without fear of
competition from the foreign market.
Reasons for ImportSubstitution
1. The policy of protection (in the form of Import Substitution) is based on
the notion that industries of developingcountries, like
a osition to com ete a ainst the oods roduced developed%
With protection, they will be able to compete in the due
course of time.
2. Restriction on imports was necessary as there was a risk of drain Of
foreign exchanqe reserves on the import of luxury goods.

CR'TICAL APPRAISAL OF INDUSTRIAL DEVELOPMENT (1950 -1990)

The achievements of India's industrial sector during the first seven plans are
impressive indeed.
1 e proportion of GDP contributedby the industrial sector increased in
the period from 11.8 per cent •n O- 51 to 24.6 in 1990 - 91. This rise
industry's share of GDP is an importantindicator of development.T

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9811792114
a remarkablecontributionby creating a str
industrial base, developing infrastructure and promoting development
backward areas.
• However, the public sector continued to monopolise (that too
ineffectively) in certain non-essential area*, which could be Well
handled by the private sector. For example, telecommunica Ions,
industry, production of goods (like Modem Bread).
As a result, recious funds of ublic sector chan elized into areas,
where privat
• Many public sector firms also incurredhuge losses but continuedto
function because of difficulty in closing a government undertaking.
e tic sector in such non-essential areas was
criticized by many scholars. According to them, the role Of public
sector should be limited to strategic areas (like national defence) and
private sector should be given the opportunityfor other non-essential
areas.
According to some economists, public sector is not meant for earning
profits but to nromntethe welfare Qf n*ion. So, they should be
evaluated on the basis of their contributionto welfareof the people
and not on the profits they earn.

Conclusion
The progress of the Indian economyin the three sectors can be summarized
as under:
In Agriculture Sector:
• India became self-sufficient in food production due to the green
revolution.
• Land reforms resulted in abolition of zamindari system.
In Industrial Sector:

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became
industries far more comparedto the situation
at independence. However, excusive government regulation
prevented their growth.
Many economists wore disnatlsned With tho performance of publi0
sector enterprises.
TradeSector:
our policies were 'inward oriented'and so wo failed to develop a
strong export sector.
in
The domestic producers were protected against foreign competition
order to gain self-reliance. However,this did not give them tho
incentive to improve the quality of goods that they produced.
of
need for reform of economic policy was widely felt in the context
global economic scenario. So, the New Economic Policy (NEP) was
changing
in 1991, to make our economy more efficient. This is the subject of
initiated
chapter.
thenext

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